Frydenberg confident on course for surplus

Federal Treasurer Josh Frydenberg is confident his government will be able to keep its election promise of surpluses over the next four years, despite marked downgrades to the outlook in his latest budget update.

The mid-year budget review released on Monday showed the surplus forecast for 2019/20 has been cut to $5 billion from the $7.1 billion predicted at the time of the pre-election budget in April.

The downgrade was part of a $32.6 billion cut to tax receipt expectations over the four years to 2022/23.

But at this stage Mr Frydenberg is still on course to be the first treasurer to return a surplus since Peter Costello 12 years ago.

"If you look at our our last three final budget outcomes we have bettered what was forecast by $37 billion," Mr Frydenberg told reporters in Canberra when asked whether he was still confident in his election pledge to return surpluses.

He said the prediction for commodity prices in the update - a key plank for surpluses going forward - was "conservative", with the iron ore price forecast at $US55 per tonne compared with around $US85 per tonne at present.

"Strong fiscal outcomes are an important factor in our AAA credit rating on Australia," it said in a statement.

But while Mr Frydenberg spoke about the "resilience of the Australian economy", he was forced to slash his economic growth forecast for 2019/20 to 2.25 per cent, from 2.75 per cent.

This was blamed on weak momentum in the global economy, as well as domestic challenges such as the effects of drought and bushfires.

The Mid-Year Economic and Fiscal Outlook (MYEFO) also showed downgrades to household consumption, business investment and wages growth, while the unemployment rate is expected to be higher.

"When you hear Josh Frydenberg talk about confidence, you have got to wonder whether he is reading the same budget papers he has just released," shadow treasurer Jim Chalmers told reporters.

"Everything has been downgraded in this MYEFO, especially the government's economic credibility."

Wage growth is now not expected to reach three per cent until 2022/23, while the unemployment rate is forecast to be higher than hoped at 5.25 per cent, rather than five per cent for this financial year and next.

"With continued sluggish below-trend economic growth, there is nothing in MYEFO that points to a circuit-breaker to trigger an uplift in the domestic economy," PwC chief economist Jeremy Thorpe told AAP.

While some major new spending since the April budget has targeted important social needs, such a $623.9 million aged care package and those affected by the drought, this will not provide a boost to productivity, investment or wages, he says.

This will keep the pressure on the Reserve Bank of Australia to reduce the cash rate even further next year, as it wants to see the jobless rate closer to 4.5 per cent to help lift wages growth.

"We still see the cash rate being cut by 0.25 per cent in February and March, taking the cash rate to 0.25 per cent by March with the RBA also undertaking quantitative easing," AMP Capital senior economist Diana Mousina said.